VC startup idea - PE or VC interest? Are these numbers viable?

Seeking ~14mm in VC capital for a startup

(in multiple funding rounds...starting with a 2mm Seed round)

Can you guys give me a list of 10-20 VC firms that I should approach for my seed round?

(lots of background info below....but all just in an effort to help those with industry knowledge to provide a list of VC firms that are actively making Seed investments in the FinTech space)

I have an idea for a startup in the financial markets exchange realm, but it will require significantly more capital and developer-hours than I can put in myself. I think its a candidate for a VC firm, but I've never pitched to a VC firm, so maybe some people on this board can point me in the right direction.

My background: BB IT Developer (programmer) --> Market Maker --> Prop Trader

The startup is a new type of trading exchange that takes advantage of the current regulatory and BB fixed income brokerage model (BBs have been pulling back and cutting costs on certain industries). There are a few other startups in this arena, but they all specialize in certain niches, and lack multiple aspects of what would create the "ideal" exchange platform for these products/securities, and most of these other startups have not generated enough scale/market saturation to reach exit potential (i think because of their business model - can be done much better than current operators).

The TAM (total addressable market) is about 20 billion/year.

By my estimate, my company (when grown to scale) should be able to capture in the range of 1-5% of that market. More TAM% would, of course, be great...and its "possible" to achieve 10%, but in seeking to be reasonable, I don't want to be caught as overly optimistic.

Doing the math on 1% of the total addressable market, this company should generate ~200mm revenue when fully operational within ~5 years...and about 80mm/year of profit on that 200mm (so an 800mm target exit valuation, depending on what kind of multiple these companies sell for...i'm just assuming 10x profit). These numbers are assuming average market penetration. The potential is for more, but I'm not going to say "if I get 10% of the market, we'll make 2bln/year" because I don't think 10% market saturation is reasonable to expect (tho would be nice).

IEX is a good comparison....they are about 6 years old, and made about 50mm last year (or so i read)
BondPoint sold for 400mm in 2018
TMC sold for 685mm in 2018
TruMid raised 37mm in 2017 and is valued at 100mm+
Nasdaq bought eSpeed for 750mm

And there are others...but there is still room in the exchange business for untapped/inefficient business models

I have a tech/programming and trading background, so i know exactly what the platform should look like, and I have a basic idea of the programming work involved. I'm estimating that it will cost all in about 10-15mm to get this exchange self-funding and profitable (that 10-15mm includes basic rent, IT developers, a sales force, and all the other admin stuff that comes along...but the bulk of the expense is developers that will cost 150-250k/year + stock options).

Ok, so anyway...who do I pitch my idea to? Is there a list of VC firms and ways to contact them? What kind of equity valuation should I be seeking at this point from a Seed VC? (Right now, this startup is just an idea in my head)

Other thoughts?

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Comments (53)

Jan 24, 2019

Your math doesn't work at all for a VC FWIW and PE doesn't touch pre-revenue.

VCs NEED massive massive massive multi-billion dollar exits to make their portfolio thesis work. Your big win MUST pay for all their losers, and they have a lot of losers.

This is solvable though. Rethink the solution/product into something with a huge TAM.

Also...what you need to do is figure out how you can prove concept with a lot less money, once you have that traction you can maybe raise an 8 figure round. Unless you're an experienced entrepreneur with an exit under your belt or have a world class team ready to go, you're not going to get 8 figures in a prerev funding right off the bat with no traction.

Jan 30, 2019

lets say i breakup the funding to 3 VC rounds

round 1 - (seed) 2mm (funds 1st 18 months of runway) (15% equity) (13mm valuation)
round 2 - 4mm (funds 2nd 18 months of runway with larger team) (15% equity) (26mm valuation)
round 3 - 8mm (funds 3rd 18 months of runway with even larger team) (15% equity) (53mm valuation)

(also have to prepare to give away 10-15% to employees)

by the end of year 3-4 the company should be generating enough revenue to be self funding.

Using the other companies in this market which have sold for 400mm-750mm for comparison...and that type of exit...which means an 800mm exit with a potential return table within 5-7 years of:

60x return for stage 1 investor
30x return for stage 2 investor
15x return for stage 3 investor

I've read that the median deal size for seed companies is now $2.2M, with a median post money valuation of $10.7M...so i think i'm in the ballpark. I might need to give my seed investor 20% (instead of 15%)....but any more and i'll end up with such a small % of the final company.

The numbers i've posted are what i strongly believe are achievable. Now, i could go out the risk curve and add additional related business which could POTENTIALLY bring annual profit to 100-200mm+....which would bring the exit value to 1-2 bln+ which would double those returns...but there is more risk in that projection (harder to achieve) and i don't want to seem like my head is in the clouds.

My 1st goal is to convince a VC firm to invest 2mm in my seed round for ~ 15%. (this is what i need to create a minimum viable product...a trading exchange has lots of moving parts and will require tens of thousands of developer programming hours at an avg cost of $100/hour)
Then after 18 months of operation i'll be able to present proof of concept and line up the 1st generation of customers....to raise 4mm round 2...etc...

My primary question is...which VC firms should i approach...and how do i go about doing that?

just google it...you're welcome

Jan 25, 2019

Seems interesting but out of curiosity where is your project at the moment? Have you raised seed funding? Have you started developing a product?

Jan 30, 2019

right now, this project is just a basic power point presentation.
I've done some research to understand what work needs to be done, but have not raised any capital yet.
Development is still in sketch mode (so, no real code written yet...just diagrams and psuedo-code).

just google it...you're welcome

Jan 25, 2019

Its gonna be hard to raise 2m with this in my opinion. Try to find a team that would be interested in the project and work on it for 3/4 months FT and then try to raise 2m. You could try to do an angel round now to allow you to work for 3/4 month on it.

VCs are usually looking for a team of more than 1.

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Jan 30, 2019

while i understand that 1-founder startups are not the norm....i am a technical founder...and i also have years of practical business experience in this realm (i'm over 40, and have been working in this industry for 20 years)....so i know a lot of what needs to be done (biggest challenge is that i won't have enough time to do it all...i'll be spread very thin...so i'll need my early employees to step up and take on a lot of responsibility....which is why i need to raise this capital in the first place...i'm allocating my seed round to hire 5 developers plus myself as dev #6 / group manager / everything else that running a startup entails)

i've thought about taking my idea to a larger company instead of building this as a startup (one of the large clearing firms for example) which would benefit from economies of scale.....but there are significant drawbacks (economic ownership being the biggest)....plus the potential of losing directional control as they have their own current goals, and my project might be consumed by them and never reach my ultimate goal.

just google it...you're welcome

Jan 25, 2019

Makes sense. As other have mentioned it seems like its not the type of project that would be attractive to traditional VCs, however you could try to reach out to family offices, they would be more flexible especially given the fact that you want to be the sole founder.

Also early developers will most likely want a chunk of equity+co-founder title

Jan 30, 2019

i'm expecting to have to give away 45% of equity thru VC fund raising to pay for the first 3-4 years of salaries and expenses...which leaves 5% of equity for the employee bonus pool, and allows me to keep 50.01% ownership to retain control.

Assuming an exit at 800mm....that 5% = 40mm for the early employees

just google it...you're welcome

Jan 25, 2019
faceslappingcompilation:

so i know a lot of what needs to be done (biggest challenge is that i won't have enough time to do it all...i'll be spread very thin...so i'll need my early employees to step up and take on a lot of responsibility....which is why i need to raise this capital in the first place...i'm allocating my seed round to hire 5 developers)

NOTE: this mental framework will kill you faster than seeing the wind monster from Bird Box. You'll be spread very thin no matter what, and hiring 5 developers to work while you clock in to your 9-5 isn't going solve anything and it'll be a big turnoff to any investor you pitch. Relying on employees to "step up and take on a lot of responsibility" is a BAD strategy unless you're planning on going full-time on the business, demonstrate you're willing to go all in to make it successful ( didn't mention in your plan).

Once the 5 developers are hired you'll be working your tail off managing the new dev team, setting project timelines/deadlines, project design, technical infrastructure, legal contracts, managing updates and bug fixes, testing etc.

Keep in mind that it'll be a 'round the clock effort and extremely high pressure especially once investors are involved.

    • 2
Jan 30, 2019

Not sure where i mentioned that i would not be "all in" ?

regarding my comment of hiring 5 developers...i will be developer #6, and also the team / product manager....once i get VC funding, this will be all i do, working 12+ hours days for the next 5-10+ years

just google it...you're welcome

Jan 25, 2019

You didn't mention that in the initial post. From what I understood I thought that you'd be spread too thin with work+family+startup and expected employees to take on the majority of the responsibility. Thanks for clarifying.

Don't underestimate the amount of work required outside of development, too. Especially in the early days/pre-investment. As much as being dev #6 is your strength, you'll more than likely spend the majority of your **18*** hour work day managing, planning, networking, selling, hiring, firing, HR, legal, and managing anxiety.

To answer your original question of "Who do I pitch my idea to?", I said in a different post but definitely start with your professional network within the industry. Get validation for the idea and ask for intros to rich angel investors.

    • 1
Jan 25, 2019

Fintech VC's may be a good start but before you send them a single email, you're going to need far more to show them than a powerpoint deck. Ideas are dime a dozen. Most people are going to want to see at least a basic prototype. Hell, even accelerators typically ask for more than just a deck, the founder's skills and background notwithstanding.

As someone else above mentioned, you may want to consider bringing on at least another co-founder and start working on a very rudimentary product that can demonstrate your value prop. Once you have that, this early in the game accelerators/incubators may still be a better target than VC's. If nothing else, getting accepted into one or more and going through their bootcamp will give you some credibility.

Edit: Where I'm based, at least two major banks have started pretty significant in-house incubators for third-party ideas. So what you mentioned about going to a large company may have some teeth if you can find the right companies to go to. Again, be mindful of their minimum requirements, which may well be more than a deck.

    • 1
Jan 30, 2019

do you have a list of Fintech VCs and in-house incubators that this startup concept might be compatible with?

i can build a VERY rudimentary product for demonstration purposes....but this would be a totally hacked together thing with minimal functionality that would not be used for anything other than these investor presentations.

just google it...you're welcome

Jan 25, 2019
Jan 30, 2019

touche'...but there are hundreds out there...i was hoping some people on this board could help me reduce that number to 10-20 with their industry knowledge.

i'm going thu this list now, and i'm already exhausted...could use some experienced people to help whittle down the list to something managable

just google it...you're welcome

Jan 25, 2019

But what are you going to offer those people? The intellectual/social capital ask you have is pretty big, so what are you going to put up for something that valuable?

Jan 30, 2019

a list of 10 VC firms to reach out to is not a huge ask....i'm not asking this board for money or hours of work...just list off the top of your head 10 VC firms that you think may be interested in my startup. Lots of people derive pleasure from giving free advice to others...that's also the source of most of the discussion on this forum. Advice freely given....just makes the adviser feel good. Its good karma...costs you nothing....and is not taking $$ out of your pocket.

just google it...you're welcome

Jan 25, 2019

If it's truly valuable insight, then that person is giving up social capital because it will be funds they have direct knowledge of. That is more valuable than anything else on earth. Something most within the industry understand well. If it's something less than direct relationship knowledge, that is less valuable to you than a pitchbook login. Good luck to you.

Jan 30, 2019

this still confuses me...these firms are all on some public list somewhere...the hard part is working thru a list of over 200+ VC firms...its just takes so much time...but if you know off the top of your head the name of a few VC firms that i should reach out to...i mean...you'd be doing both me and them a favor...and it costs you nothing.

do you want like a 1% finders fee?

just google it...you're welcome

Jan 30, 2019

If you really want the best chance of securing early funding, you might as well hit every fund on that 200+ list with your idea. Chances are that someone will want to hear more.

Jan 30, 2019

i'm in the process of doing this. I don't want to send a mass email...i'm trying to slightly cater each message to the recipient...and that just takes a lot of time...and there are more than 200....i'm just STARTING with 200 and then will go on from there.

Starbucks got rejected by 400 VC firms before he got his first investor...

just google it...you're welcome

Jan 30, 2019

I agree - every question on every topic has been asked. They should archive every message board and forum on the internet including WSO, and disallow any further posting except for people to tell other people to use Google or the search button.

Jan 30, 2019
Bateman Begins:

Edit: Where I'm based, at least two major banks have started pretty significant in-house incubators for third-party ideas.

would you mind sharing those banks?

just google it...you're welcome

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Jan 25, 2019

Sounds like you have a solid idea and a half-baked business plan. Off to a good start, already further than most people who say they want to build a business.

From my experience pitching VCs I'd say that you're going to need solid traction with users/customers to raise the kind of money you're talking about. To ask for a $15mm valuation pre-prototype/MVP and without a founding team will generally get you laughed out of a room.

My advice - if you decide to raise pre-MVP, find angel investors through your network of co-workers or industry professionals. Since you've been at a BB and this is a FinTech play, this will be your best route as the people in your professional network should quickly see the value proposition (if any) of your product, and will have connections to institutional decision makers and other people with ca$h staxxxx ready to be deployed.

Also, I HIGHLY recommend bringing on a co-founder that has strengths where you're weakest. It sounds like you have the technical chops to understand the development/technical side, but can you sell? Can you spend time vetting potential angel investors and build rapport? Can you create pitch books that sell the vision and articulate that vision to prospective investors during presentations? Do you have a fundraising track record? Do you have a defined go-to-market strategy?

One thing I've learned from founding companies is that you can't do everything on your own. Find someone that brings complimentary skills to the table, compensate them with a sizable chunk of equity and re-invest your time, effort, energy, and disposable capital into the biz.

    • 1
Jan 30, 2019

My former work contacts have gone stale / bridges burned...so that route is not an option.

There must be a way for a programmer with an idea for an enterprise IT product to convince a VC that the idea is good, and i'm the guy to lead it. Isn't that what Seed funds that invest 2mm and expect 15-20% equity do?

This enterprise software product will take years to build without a massive team of developers. I could hack together a prototype, but it would not really be functional in any substantial way...it would effectively just be a series of linked pictures, which creates no real value.

just google it...you're welcome

Jan 25, 2019

Not impossible to raise a $1m+ seed round pre-product but it's definitely challenging. It depends on where you're raising the money and the general risk tolerance of the geography. If you're in a tech or finance hub your odds of successfully pulling it off are higher but there are still tons of post-launch, rev generating startups competing for the same funding.

I can 100% relate to where you're coming from on the dev side. It's a "chicken and egg", can't launch a good product without funding, can't get funding without users, can't get users without product. The early days are full of torture like this.

The best route is to build a Prototype/Demo that does 1 thing better than all the alternatives and go get sales as early as possible. If you go to a VC and tell them you have $500k in pre-sales from x amount of clients, they'll be interested.

If you' do get a $2mm pre-product and pre-sales investment offer be ready to get BENT over on equity, liquidation preferences, and other deal terms. If you have sales you have leverage.

    • 1
Jan 30, 2019
StrapYourBoots:

It's a "chicken and egg", can't launch a good product without funding, can't get funding without users, can't get users without product. The early days are full of torture like this.

There must be some VC firms that understand this...and are willing to discuss with new founders the startup potential and are willing to create a reasonable agreement that solves the chicken/egg problem.

just google it...you're welcome

Most Helpful
Jan 25, 2019

Not really. I'm in late stage tech investing, think more growth equity than VC. I still meet with people like you regularly (those that survive past the seed round and grow up are my bread and butter). What you are wanting seems to be someone with motivation outside of return. Perhaps you can find some seed fund founded by a technical founder that got lucky and made it big. These guys tend to flame out quickly. So what you need to focus on is finding VC's that sell themselves as such. They likely will be new and relatively unknown. The rest are professional investors and do not back pure ideas. There must also be a sound business plan and some decent market validation. Also, like he said, these guys are going to bend you over a table on structure. I've seen as bad as 4.0x liq pref participating in an early stage tech only founder company. From my perspective, it sounds like you need someone with more business/financial acumen as a partner. Preferably someone with experience in early stage capital raising. Unfortunately there are a lot of charlatans. You'll have to thoroughly vet them and hopefully they are someone you know and trust. I've seen someone like you raise a $10MM from KP in their first ever round (largely unheard of) and evaporate in 18 months. Find yourself a strong partner who's skill sets compliment your own and your likelihood of success increases ten fold.

    • 4
Jan 30, 2019

what is a 4.0x liq pref?

and also...2mm Seed for 15-20% equity for a business that could realistically generate 200mm+ profit/year in 5-7 years...how is that not "motivation outside of return"

just google it...you're welcome

Jan 25, 2019

The fact that you don't know that proves my point that you need a partner. It means the VC gets 4.0x their money before anyone else sees a dime (inclusive of accrued dividends). The participation means they share pro-rata proceeds after that so if they own 20% (which the will at least own that much) then they get 20% and you only get 80%.

Hopefully you haven't burned all your contacts and you can find a trustworthy and capable partner. Good luck to you.

    • 4
Jan 30, 2019

ok, so lets say my business goes as planned....

2mm for 20% to seed with 4x liq pref
4mm series A 15%
8mm series B 15%

and then in 5-7 years the exchange is generating 200mm/year profit
-the Seed investor get 8mm
and then on an annual basis
-100mm accrues to the investor group (from a 14mm total investment)
-92mm is retained by the business (founders + employees)

or the exchange gets sold for 200mm x 10 = 2bln and those 100mm becomes 1bln on exit.

this still seems like a big win to me? whats the problem?

just google it...you're welcome

Jan 25, 2019

i) It's always going to take more capital than you think it will, ii) growth is always going to be slower than you think it will be, iii) when you run out of capital ahead of plan they are going to squeeze you even more, and iv) by the time you have a viable business for exit they will have enough control to force a sale when it is advantageous for them, not you (maybe you, but they really don't care). At the very least you need to find a local incubator/entrepreneur center that hosts seminars on capital raising. While you're still not going to be anywhere near where a good partner would be, you'll be flying a lot less blind than you are now. You'll also have the benefit of local seed fund guys attending.

    • 3
Jan 30, 2019

does it make a difference that my customers are a pretty specific niche with money to spend?...hedge funds and regional dealers with a minimum of 50mm AUM (regulatory requirement)...and a max of 500mm-1bln (being practical as the banks give the super large customers preferential treatment). So my customer universe is about 6000 firms.

My exchange will be filling a void that currently exists for this market...and i'll be a cost saving feature for the bulge bracket dealer banks who will be the main liquidity providers (they will eventually be able to get rid of/reduce headcount for the sales force that handles these smaller customers who individually don't generate enough profit to the banks with their commission $$ being spread around to so many dealer banks...my exchange will include a kind of outsourced version of that sales /compliance force...one point of contact at the dealer banks for 6000 small funds)...and a simplified user experience for the hedge funds (one application interface to access all the bulge bracket liquidity in a variety of fixed income markets...a simplified aggregated market place...no one bank can or wants to build this...because it slightly reduces their semi-monopoly...and nobody would fully trust that the bank who builds this themselves would not 'sneak a peak' under the hood to see who is doing what...but once it exists from my external exchange...they will all profit from participating...sales/compliance headcount reduction...easy access to liquidity "all-to-all"...essentially offering to the fixed income market what IEX offers to the equity market...and the same reason that RBC guys didn't build IEX internally inside RBC and then offer it to the world....they could have...but the market would not have trusted RBC, or any bank, to be 100% honest when they have an economic incentive to cheat).

There are of course some other proprietary ways to increase revenue, and my goto market business strategy for once this platform grows to scale (which i'll keep to myself on this public platform)....but i've laid out the basic platform here which i think has a winning argument structure on its own.

The biggest threat is that an existing entrenched player (Goldman Sachs or JPM, or Thompson Reuters, or DealerWeb for example) decides that its time that they just built this themselves. They already have the distribution network for easy customer acquisition...and they have the developer capacity, knowledge and infrastructure to build this faster and cheaper than i can. But its been years, and they haven't bothered to do so. I recall talking to desk heads about this when i was working at the dealer banks, and they all said "why bother hastening their own demise?"

From a short-sighted economic perspective to the individual trader, it makes sense...they would be cannibalizing their own existing business...but in the long term, for the institution as a whole, its clear that this will come...and by not building it themselves...they are just extending their semi-monoply for a short period of time until SOMEBODY builds this. Essentially the same argument for the IEX stock exchange.

just google it...you're welcome

Jan 25, 2019

There has been some very sage advice given here. Glad to see this thread has been productive.

Quick $0.02 in response to some of your points RE cost of development for fintech and the legacy tech in banking.

If you can find ONE early customer (what i refer to as "pilot" or "anchor" customers) to buy into your idea you can build around their infrastructure and get product to market faster. Even though this isn't scalable in the long run, it'll give your idea the necessary market validation it needs and will allow you to get constructive feedback from clients that and allow you to create something customers love. Go find an ideal pilot customer and tailor the product to make them successful.

If you get this far and you have one paying customer that loves what you have to offer you'll be in position to raise the VC $ you're talking about to execute a growth & growth-to-scale strategy.

I hope you continue working on it and keep us updated on progress. It took me 1-1.5 years to get the pieces in place for the first business (biz plan, team, mentors, strategy, and finally MVP) so I don't (and you shouldn't either) expect this to materialize overnight.

    • 1
Jan 30, 2019

while i understand the idealness of this strategy...it would still require more developer resources than i can personally provide. I need to raise capital so that i can hire developers to build...the major parts include, off the top of my head:

1-orderbook
2-matching engine
3-trader interface (trade entry, market view, etc..)
4-RFQ interface
5-AuditTrail
6-OrderManagementSystem
7-Trace Reporting
8-Connection Engine
9-post trade messaging (out to the dealers)
10-downstream messaging system for liquidity providers

and each one of these is not a small thing to build. I'm estimating that it will take my future team (that i have yet to hire) about 3 years to build. If i could do all this myself, then i wouldn't be desperate to raise seed VC money....

just google it...you're welcome

Jan 30, 2019
Mephistopheles:

Perhaps you can find some seed fund founded by a technical founder that got lucky and made it big. These guys tend to flame out quickly. So what you need to focus on is finding VC's that sell themselves as such. They likely will be new and relatively unknown.

how do i find these Seed VC firms if they are " new and relatively unknown"

do you know of any?

just google it...you're welcome

Jan 24, 2019

Step 1.
www.crunchbase.com

Step 2.
Smile and dial.

Jan 30, 2019

anybody have a list of Seed VC firms from crunchbase for me to contact? Google gives me hundreds...but i'd rather stand on the shoulders of giants and just reach out to 10-20 if that's possible? (and not waste the fee $$ if i can avoid it)

just google it...you're welcome

    • 1
Jan 29, 2019

@Mephistopheles, @StrapYourBoots and @m_1 already provided great points (and in a lot of detail). But it just feels like they are trying to provide you good advice and you're ignoring them / talking through them...

I'm not going to rehash everything, but I would agree with what was said about you having a difficult time getting people to buy into an idea without some form of traction or basic solution in place. And that it will be an extreme uphill battle with a lot of VCs. Also, your thought on people love providing free advice and good karma and all that - sure, that's something occasionally done to be good players in the startup and VC ecosystem. But we don't have time to meet with every single entrepreneur to provide advice and mentorship (the days are already extremely packed with meeting founders that actually have startups that are actually within our respective strike zone in terms of stage and maturity). We are heavily consumed with reading/research, thesis development, meetings with upcoming startups, working with our existing portco's, networking, ecosystem events.

If you do a bit of reading, you'll find that some VCs don't even meet with startups (or in your case, a founder to be) unless they have a warm intro (or at least a reasonable "I know a guy / girl, who's working through something..."). The last time I met with someone without a MVP was a recommendation from a fellow VC. And this person was a pretty well connected guy who was already planning to join a team to build something out. (It was way too early, but interesting to keep tabs on - and primarily driven on a reco).

What you may want to look for is "pre-seed" funding (as the already vague definitions of seed and series A, and their average raise, range of valuations, and firm's maturity have shifted over the years). There are some super early stage funds out there. Consider looking at angel investors / family & friends. Also consider talking to some accelerators (to get a sense of whether they would be interested in you). Accelerators usually take some equity (say 4-6%) for you to be part of their program. They then provide you with their network of mentors and investors, a coworking space, marketing, and startup founder training 101. They don't actually provide you funding (though I suppose the ones that have active funds could put some money in), but it's something to consider if you're trying to get access to a network and ecosystem. In your case, I think others' thoughts on finding cofounder(s) to round out your skill set, finding angels, focus on building something out, should be your focus.

If you want to better understand VC land, read Venture Deals. Also, talk to some startup founders that have successfully raised money. Don't target VCs that aren't looking for what you're selling (stage and sector wise).

Lastly, just an observation, it has been difficult for capital markets oriented fintechs to have raised capital. The reason is due to high regulatory barriers, and also the higher level of sophistication required (both from the founders, and also their clients). Because of that, it's harder to sell into / disrupt / carve a niche out, and because it's harder on avg, it means there's far less capital chasing such opportunities.

Jan 30, 2019

It sounds like you guys are all talking about trying to raise a Series A round....but i'm down here trying to get a Seed VC to talk to (which i've read the definition to be anywhere from 50k-2mm)

I understand that there would be less risk to the VC if i was further along with a MVP and customers using my product....but building an aggregation financial exchange is a lot more complicated than building the early version of facebook (because of the regulatory burden, and the legacy infrastructure at the ibanks that i'll need to connect to...plus all the features that i'll need to build to gain the attention of my customers)...and getting "further along" will require a team of developers and over 1-2 years of coding by that team.

If i was just building a mobile app for a phone, i could probably code the MVP myself....but there are so many other pieces involved in an aggregated exchange that building a MVP is not much less effort than building the final product, and users in this market (hedge funds/traders) have no interest in using a half-baked product anyway.

My main competitor is TMCBonds (acquired by ICE for 685mm last year...along with BondPoint for 400mm)....and they are only doing 400mm/day of volume (so, penetration is still in its infancy). For comparison, the US Treasury market trades 400bln/day, on avg. So, i will need to build more/better functionality than TMC has before i can try to get customers to use my platform.

just google it...you're welcome

Jan 29, 2019

... Again, I think you're talking through us, despite us addressing the issues:

  • The stage of investors (seed, A, B, etc), and their requirements, raise, and valuations have been changing over the years. I mentioned you should look at seed and "pre-seed" investors, but even with a lot of super early investors... it's hard to just invest in an idea. Consider also looking at angels
  • I mentioned the higher barrier to entry to capital market fintechs in my last paragraph, and because of that, there's a higher level of scrutiny and expectation from the founder and their startup. Given that, you'll be hard pressed "standing on the shoulders of giants" on just an idea.. Capital Markets fintechs aren't common because they are hard to scale (due to demands of sophisticated end users). So the appetite for something that's just a concept in this space is low. So if you can't build anything ahead of time, you need to showcase your network and ability to talk the talk and get evidence of your deep connections to your customers.
  • Consider finding a cofounder or two that helps complement your skill set. And also someone to earnestly bounce ideas / play devils advocate. It's easy for a sole founder to buy into their own idea, and miss blind spots. Just an observation based on your responses... you don't seem to listen. Founders don't have to listen to everything their VC investors advise. Ultimately they make the final decisions to grow his or her business. But investors do consider whether founder is "coachable" (willing to listen to different sides). Again, listening doesn't mean agreeing to everything, it means having a discussion and working with your investors to discuss strategy.
Jan 30, 2019

i do appreciate all the responses that i've gotten on this thread....and i'll be taking them into consideration as i talk to the very early Seed stage VCs. Already had a few convos from my cold intro email....thanks to all.

just google it...you're welcome

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Jan 29, 2019

Good luck on the raise! Hope you find some good partners

Jan 30, 2019

Just a heads up, the formula of "TAM is huge so we just need a tiny % of TAM" is a classic red flag for VCs. They often take it as a sign that either you haven't thought about your TAM in a specific enough way (because it's so huge) or you haven't thought about your competitive advantage enough (because you only think you can grab 1% of it). They'd rather hear 10% of large than 1% of huge, for example. Even better would be 30% of medium. That might work out to a smaller $ amount than 1% of huge, but it holds you accountable for having a clear competitive advantage.

Unless you're in a very small city, there's probably a solid angel group that does $1m+ rounds for seed stage companies. They're accustomed to seeing some revenue, but pre-revenue isn't totally out of the question for them.

Jan 30, 2019

You guys are giving OP great feedback, although I disagree that he's ignoring it. Anyway, there is a little too much smug as you get into your third and fourth replies, when one can read between the lines "VCs need to see a validated product because even then we don't know what we're doing and it's throwing darts at a board."

And I totally get why that is, I wouldn't have the appetite to take a risk on these guys, but it's just a bit amusing to me,

Jan 29, 2019

Hmm, certainly not intending to come off smug. At least for me, it's just to make sure the OP doesn't jump in, cold call all the VCs he can find, and then not put his best foot forward (not considering things that some VCs can find critical, or big turn offs). The problem is first impressions are pretty strong, and would hate for him to close doors with potential suitable partners (I think there was some stat floating around saying you only do 1 out of 100 or even 300 opps you see... so a lot of VC is saying "no"). Especially given the space (Capital Markets Fintech) is a tough place to raise capital - definitely fewer VCs with the particular appetite / interest / industry expertise.

Jan 30, 2019

Fair enough. And I defer to the fact you clearly know a ton about the industry and I know zero, just how I took it initially

Jan 31, 2019

I don't get it. If you're a programmer with the business background, you should just quit your job/work on an MVP product in your spare time. Have a working demo, show it to potential customers, get them to sign an LOI, then go to a seed investor. It is HIGHLY unlikely that a VC/angel would fund you pre-product with significant capital (unless you/your daddy has a lot of rich friends). The best financing you should expect pre-product is a small amount of capital (<$200k) at a low valuation to pay for your ability to work on the startup full-time. I think you've got pie in the sky dreams here expecting a VC to throw you $2m for an idea that you may not even be qualified to execute.

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Jan 30, 2019

recall that in 2012, IEX (the new stock exchange from Flash Boys) raised 1.5mm in their seed VC round (775k to 8 non-US investors, and 725k to US investors). The founder was a trader with an idea...not a developer...he used the money to hire developers.

IEX went on to raise 100mm during 4 rounds over the next 3 years....and are now making 50mm/year and still growing

just google it...you're welcome

Jan 31, 2019

I know about IEX. I cannot corroborate your claim that they raised their seed round solely on an idea...they easily could have locked down some customers (LOIs etc.)/had mock ups and were able to present those to their potential investors. It is SUPER rare to raise capital pre-product/pre-anything without some sort of prior relationship with the investor (whether that be friend/family, past co-worker, prior entrepreneurial experience). Your best bet would be to create a short deck outlining exactly what your new exchange will do, what value it adds to both sides of the exchange, and TALK to potential customers and get their feedback/preliminary buy-in to sign on to your exchange. At that point, you should be able to raise some seed capital. It seems like you have this belief that a VC/angel is just going to gamble and give a part time entrepreneur money to you at a high valuation to build out a "vision" that has zero proof that it will work. While VCs do invest in risky startups, they don't throw money at any idea off the street because an idea is a dime a dozen.

There are many many startups out there that are pursuing larger opportunities than you are, working full-time unpaid for years on end, and still struggling to raise money.

FYI, I would not recommend reaching out to VCs, you're way too early for a venture fund. I'd recommend reaching out to rich people that you know who strongly believe in your abilities to be your first investors.

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Jan 31, 2019
Jan 31, 2019
Jan 30, 2019

just google it...you're welcome